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The Evolution of African Monetary Institutions

Published online by Cambridge University Press:  11 November 2008

Osman Hashim Abdel-Salam
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Extract

The 55 countries and territories of Africa can be classified today from the monetary point of view into six major groups. Of these, four are monetary areas based on the currency of the former or actual metropolitan country: the French franc, the pound sterling, the Portuguese escudo, and the Spanish peseta. The sterling area includes the area of the South African rand; and finally there is a group of independent countries, some with very new central banks and others with a longer tradition of monetary independence.

Type
Article
Information
The Journal of Modern African Studies , Volume 8 , Issue 3 , October 1970 , pp. 339 - 362
Copyright
Copyright © Cambridge University Press 1970

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References

Page 340 note 1 Before independence of the former French African territories, the initials C.F.A. stood for Colonies francaises d'Afrique and since independence they have stood for Communautés financiéres africaines.

Page 343 note 1 These included one-eighth of B.C.E.A.O.'s external reserves, grants received from France, and claims on France and Guinea, together with 75 per cent of the net profit of the B.C.E.A.O. in 1962. The convention also stipulated the complete repatriation by the B.R.M. to the B.C.E.A.O. of the old C.F.A. currency circulating in Mali, and the settlement in French francs of the balance on the transfer account. By October 1962 the liquidationofthe B.C.E.A.O.'s operations in Mali had been effected and at the end of April 1963 the outstanding accounts were finally settled.

Page 344 note 1 The President of the Republic stated, in the course of a speech to the budgetary session of the Assemblée nationale in September 1969, that the International Monetary Fund had recognised the Guinea franc as an autonomous currency. However, no information is available as to whether agreement on a par value has been reached with the I.M.F.

Page 345 note 1 In unpublished essays on ‘The Phenomenon of Bilateral Arrangements’ and ‘The Evolution of the Balance of Payments’, 1968, mimeo.

Page 346 note 1 Such modifications and extensions of the Board's activities were made in an effort to adapt itto local political and economic conditions. Although the Board continued to issue and redeem currency automatically on demand against sterling, it certainly proceeded to function, until its demise in 1965, as more than an old-style Currency Board. Other new powers attributed to the Board after s 960 included: lending to the banks for crop finance, up to £5 million at one time; the asumption of the role of bankers' bank, by the opening of accounts for clearing settlements; the extension of the network of currency sub-centres in order to improve the availability of currency throughout its area.

Page 347 note 1 It is sometimes argued that such automatic links can exist only in the absence of commercial as well as central banks. The underlying assumption of this argument is that the commercial banks—particularly, as in Africa, expatriate institutions without central bank supervision—would not in the course of normal operations enhance the working of the automatic link. There is no evident reason to suggest, however, that they would deliberately seek to offset the effect of the balance-of payments position on the monetary circulation.

Page 347 note 2 Of the old Federal currency, estimated at about £29 million (£24 million in notes and £5 million in coins), over 94 per cent had been recovered by June 1965. The respective shares of Malawi, Rhodesia, and Zambia of the old Federal assets turned out to be about 19,53, and 29 per cent.

Page 348 note 1 In an effort to tighten the financial squeeze on the rebel régime which had emerged from the unilateral declaration of independence on ii November 1965, the British Government took control of the Reserve Bank of Rhodesia and its reserve assets. This was done by means of an Order in Council in December 1965, which suspended the old Board in Salisbury and appointed a new one in London, headed by Lord Robbins. The Order in Council gives any Secretary of State in the British Government authority over the new Board, which has so far been able to lay its hands on that portion of the R.B.R.'s external assets that were held in sterling in London, amounting to about £10 million. An estimated £8 million, including about £3.5 million in gold, has remained beyond the reach of the London-appointed board, in Salisbury and other untraceable bank balances in Switzerland. It seems, however, that most of the latter assets have been exhausted. It is also apparent now that London has, in practice, very little control, if any, over Rhodesia itself as well as its monetary system.

Page 349 note 1 The 70 per cent minimum cover of external assets required by the Ordinance is less rigid than the full sterling cover requirement of the old West African Currency Board, though not substantially different from those in Central and East Africa. It provides for a fiduciary issue of a maximum value of 55 per cent of total liabilities; it allows the Board to hold movable and immovable property as well as external currencies and investments payable therein; the latter holdings are not, however, to be considered as external assets. The cover requirement still goes a good way to link the currency with the balance of payments, especially in view of the fact that the Board does not possess full power of monetary control. On the other hand, the Gambia Currency Board is different from the other African Currency Boards, and especially from the West African, in a number of ways. Foremost is the fact that the Board is Gambian in location, administration, and control.

Page 349 note 2 The Association was agreed upon at the first meeting of Governors of African Central Banks, convened in February 1966 under the auspices of the U.N. Economic Commission for Africa in Addis Ababa.

Page 349 note 3 Thus, as an immediate gesture of their will to co-operate, members of the committee declared that they would discuss opening accounts with each other in order to effect payments through the central banks of the sub-region; the latter also includes the National Bank of Ethiopia, I'Institut d'émission malgache, the Reserve Bank of Malawi, the Bank of Mauritius, La Banque nationale du Rwanda, the Somali National Bank, La Banque de la République du Burundi, and the Bank of Zambia. See ‘Final Report of the Inaugural Meeting of the Association of African Central Banks’ (Addis Ababa, 1969, mimeo.).Google Scholar

Page 352 note 1 The former territory of Spanish Guinea included the islands of Fernando Po, Crisco, Great Elobey, and Small Elobey, Annobon, and the mainland territory of Rio Muni.

Page 355 note 1 The Bank's statutory power in matters of credit control had been increased in 1957. Until then the N.B.E. had only kept the cash balances of the banking system and received monthly financial returns from the commercial banks, which had voluntarily undertaken to do so by virtue of a gentlemen's agreement with the Governor of the Bank in 1947. With the enactment of the new law in 1957, the N.B.E. also acquired authority to fix the minimum reserve and liquidity ratios. At the same time it could request the Government to issue special Treasury Bills on its behalf (later discontinued) and to revalue the gold backing for the currency.

Page 357 note 1 The Italian lira had been introduced in 1925 as legal tender. Special series of Bank of Italy notes were issued in the late I 930s to serve as legal tender in Eritrea and Ethiopia, but in Somalia the Italian authorities still preferred to have the currency, though closely linked, formally distinct from the Italian lira. However, from 1941 to 1950, following the British military occupation, the East African shilling—which had been circulating along with the Indian rupee, the Egyptian, and the M.T. thaler—became the predominant legal tender, as the territory itself remained throughout the period within the East African Currency Board area.

Page 357 note 2 The Indian rupee, the Maria Theresa thaler, and the bronze coins of Muscat, Mombasa, and Zanzibar circulated until the territory was brought under the Currency Board system in 5942. The East African shilling was declared sole legal tender in 1951.

Page 357 note 3 The C.C.M.S. had its headquarters in Rome, and was subject to joint control by the Italian Treasury and the Foreign Affairs Ministry, although independent from A.F.I.S. It had a paid-up capital of 87.5 million lire, subscribed almost entirely by the Italian Government, and its administration was entrusted to a ‘banking department’ of the Banca d'Italia in Mogadiscio.

Page 361 note 1 Three minor foreign branch banks have existed, none the less, since the occupation and the post-war administration of Eritrea—Banque de I'Indochine, Banco di Roma, and Banco di Napoli—although their powers are greatly restricted.